01 PartManual Startup Prod Part I PK Final

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TOPSIM Startup! Production

Participants Manual Part IStartup and Business Activitywith a special introduction from Abdul

Quadir Molvi et al, Institute of BusinessManagement Karachi, of the bicycleindustry in Pakistan

Version 4.2P

TATA Interactive Systems GmbH. All rights reserved.


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Contents

0 Situation and Development of the bicycle industry in PakistanI - VI

6

6

8

8

9

9

10

10

1 Introduction.......................................................................................................................................................11

1 Introduction.......................................................................................................................................................11

1.1 What is the purpose of this manual?................................................................................................................11

1.1 What is the purpose of this manual?........................................................................................................11

1.2 What is TOPSIM Startup! all about?.............................................................................................................11

1.2 What is TOPSIM Startup! all about?......................................................................................................11

1.3 Simulation between Theory and Practice........................................................................................................12

1.3 Simulation between Theory and Practice................................................................................................12

1.4 TOPSIM Startup! Learning Goals..................................................................................................................12

1.4 TOPSIM Startup! Learning Goals...........................................................................................................12

1.5 How the Seminar Works....................................................................................................................................13

1.5 How the Seminar Works..............................................................................................................................13

1.6 Short Description of Your Business Idea.........................................................................................................14

1.6 Short Description of Your Business Idea................................................................................................14

2 Business Plan....................................................................................................................................................15

2 Business Plan....................................................................................................................................................152.1 Information Sources...........................................................................................................................................15

2.1 Information Sources....................................................................................................................................15

2.2 Creating a Business Plan..................................................................................................................................15

2.2 Creating a Business Plan............................................................................................................................15

2.3 Using the Business Plan Assistant...................................................................................................................16

2.3 Using the Business Plan Assistant...........................................................................................................16

2.3.1 Step-by-Step Guide.......................................................................................................................................16

2.3.1 Step-by-Step Guide...................................................................................................................................16

2.3.1.1 Management Concept / Business Idea....................................................................................................16

2.3.1.1 Management Concept / Business Idea..............................................................................................16

2.3.1.2 Product Idea / Service Concept................................................................................................... ......... ...17


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2.3.1.2 Product Idea / Service Concept..........................................................................................................17

2.3.1.3 Sales Prognosis..........................................................................................................................................17

2.3.1.3 Sales Prognosis.....................................................................................................................................17

2.3.1.4 Market Structure / Competitors.................................................................................................................17

2.3.1.4 Market Structure / Competitors...........................................................................................................172.3.1.5 Production and Logistics Planning............................................................................................................18

2.3.1.5 Production and Logistics Planning....................................................................................................18

2.3.1.6 Business Strategy and Marketing Mix......................................................................................................18

2.3.1.6 Business Strategy and Marketing Mix................................................................................................18

2.3.1.7 Future Outlook............................................................................................................................................19

2.3.1.7 Future Outlook........................................................................................................................................19

2.3.1.8 Personnel Planning....................................................................................................................................19

2.3.1.8 Personnel Planning................................................................................................................................19

2.3.1.9 Investments................................................................................................................................................20

2.3.1.9 Investments............................................................................................................................................20

2.3.1.10 Further Expenses Incurred in Starting and Expanding your Company...............................................20

2.3.1.10 Further Expenses Incurred in Starting and Expanding your Company.....................................20

2.3.1.11 Financial Planning....................................................................................................................................20

2.3.1.11 Financial Planning...............................................................................................................................20

2.3.1.12 Debt Service Calculation.........................................................................................................................20

2.3.1.12 Debt Service Calculation....................................................................................................................20

2.3.1.13 Profit and Loss Account...........................................................................................................................21

2.3.1.13 Profit and Loss Account.....................................................................................................................212.3.1.14 Budgeted Balance Sheet.........................................................................................................................21

2.3.1.14 Budgeted Balance Sheet....................................................................................................................21

2.3.1.15 Company Value........................................................................................................................................22

2.3.1.15 Company Value.....................................................................................................................................22

2.3.1.16 Entrepreneurial Team..............................................................................................................................22

2.3.1.16 Entrepreneurial Team..........................................................................................................................22

2.4 Data Transfer.....................................................................................................................................................22

2.4 Data Transfer.................................................................................................................................................22

3 Creation of the Company ...............................................................................................................................24

3 Creation of the Company ...............................................................................................................................24

4 Market Entry and Activity on the Market......................................................................................................24

4 Market Entry and Activity on the Market......................................................................................................24

4.1 Sales 24

4.1 Sales 24

4.1.1 Price 24

4.1.1 Price.............................................................................................................................................................24

4.1.2 Advertising.....................................................................................................................................................24

4.1.2 Advertising.................................................................................................................................................24

4.1.2.1 Print Advertising.........................................................................................................................................25


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4.1.2.1 Print Advertising....................................................................................................................................25

4.1.2.2 Sales Promotion.........................................................................................................................................25

4.1.2.2 Sales Promotion.....................................................................................................................................25

4.1.2.3 Corporate Identity Expenses.....................................................................................................................25

4.1.2.3 Corporate Identity Expenses...............................................................................................................254.1.3 Wholesalers...................................................................................................................................................25

4.1.3 Wholesalers................................................................................................................................................25

4.1.4 Internet Presence..........................................................................................................................................25

4.1.4 Internet Presence......................................................................................................................................25

4.1.5 Sales Representatives..................................................................................................................................26

4.1.5 Sales Representatives..............................................................................................................................26

4.2 Purchasing..........................................................................................................................................................27

4.2 Purchasing.....................................................................................................................................................27

4.3 Administration....................................................................................................................................................27

4.3 Administration...............................................................................................................................................27

4.3.1 Purchasing and Administrative Personnel...................................................................................................27

4.3.1 Purchasing and Administrative Personnel...........................................................................................27

4.3.2 Administration Costs.....................................................................................................................................27

4.3.2 Administration Costs................................................................................................................................27

4.4 Research and Development..............................................................................................................................27

4.4 Research and Development........................................................................................................................27

4.5 Goods and Services..........................................................................................................................................27

4.5 Goods and Services.....................................................................................................................................274.5.1 Production Lines............................................................................................................................................27

4.5.1 Production Lines.......................................................................................................................................27

4.5.1.1 Production Lines Investment / Disinvestment..........................................................................................27

4.5.1.1 Production Lines Investment / Disinvestment..................................................................................27

4.5.1.2 Number of Production Workers ................................................................................................................28

4.5.1.2 Number of Production Workers ..........................................................................................................28

4.5.2 Business Space.............................................................................................................................................28

4.5.2 Business Space.........................................................................................................................................28

4.6 Personnel............................................................................................................................................................28

4.6 Personnel.......................................................................................................................................................28

4.6.1 Personnel Costs and Services.....................................................................................................................29

4.6.1 Personnel Costs and Services................................................................................................................29

4.6.2 Hirings and Dismissals..................................................................................................................................29

4.6.2 Hirings and Dismissals............................................................................................................................29

4.7 Finance and Accounting....................................................................................................................................31

4.7 Finance and Accounting.............................................................................................................................31

4.7.1 Financial Decisions.......................................................................................................................................31

4.7.1 Financial Decisions...................................................................................................................................314.7.1.1 Short-Term Loans.......................................................................................................................................31

4.7.1.1 Short-Term Loans..................................................................................................................................31


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4.7.1.2 Long-Term Loans.......................................................................................................................................31

4.7.1.2 Long-Term Loans...................................................................................................................................31

4.7.1.3 Overdraft Credit / Minimum Cash Balance...............................................................................................31

4.7.1.3 Overdraft Credit / Minimum Cash Balance........................................................................................31

4.7.2 Capital Investment / Securities.....................................................................................................................31

4.7.2 Capital Investment / Securities...............................................................................................................31

4.7.3 Taxes 32

4.7.3 Taxes...........................................................................................................................................................32

This is document on Bicycle Industry of Pakistan was provided courtesy of studentsSheroz Parrez, Ahsan and M.Shoib of entrepreneurship class of summersession (2012).This report was supervised by class instructor Abdul Quadir Molvi, Institute of BusinessManagement.


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1 Introduction

1.1 What is the purpose of this manual?

You can use this manual to prepare for the TOPSIM Startup! management simulation. The

list of contents and Chapter 1 give an overview of the content of the manual. In order to

prepare for the seminar, it is advisable to study chapters 2, 3 and 4 in depth.

During the simulation you can use the manual for reference and to help you make decisions.

Besides the main body of the manual, there is also an appendix, which the instructor will

provide you with later. The appendix explains the reports and the decision form, which will

help you to approach the simulation systematically later on. The appendix also includes a

detailed manual for the initial periods. This gives you a step-by-step guide to help you work

through the complexities of the initial periods.

In addition, the Startup! Web will provide you with important information for your

entrepreneurial decisions. Therefore, the manual does not give all of the answers, such as

the exact values for certain influential factors like salary and price. In order to find this

information you will have to conduct your own research (just like a real entrepreneur). In

reality, almost all important information can be found on the Internet, and the TOPSIM

Startup! simulation therefore includes a model of the World Wide Web (WWW) called the

Startup! Web.

1.2 What is TOPSIM Startup! all about?

In the TOPSIM Startup! management simulation you and your team members take on the

role of an entrepreneurial team. You plan a startup, a small business which produces bikes.

As part of the Startup! simulation, you go through the entire process of start ing a firm, from

coming up with your own business idea, creating a business plan, entering the market, and to

subsequently operating your own business.

Therefore, you should first collect the necessary information to formulate your business plan.

In this phase you have recourse to a business plan assistant, which takes you through the

creation of a business plan step-by-step. The particular aim of this phase is for you to learn

what the crucial elements of a business plan are, and where the problems lie when drawing

up and calculating figures. The business plan you create also influences how the simulation

continues. It forms the basis for the instructors decision about how much investment capital

your firm should receive, whether you should be given subsidies, and if so, how high this loanamount should be.

Approval of your business plan by the instructor is then followed by the startup and

subsequent entry into the market. During the eight periods of business activity you will make

all important entrepreneurial decisions, taking into account the general economic situation.

You will be competing against four other firms on the virtual market. A complex computer

simulation programme processes the decisions you make and thereby simulates the

competition. Your decisions are evaluated after each round, and you are informed to which

degree the measures you have taken have been successful. Thus, you learn how to deal with

business tools and understand what effect they have. The virtual market on which your firm is

active will seem like a complex system, involving inevitable conflicts of goals which you must

resolve.

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1.3 Simulation between Theory and Practice

As a management simulation TOPSIM - Startup! builds a bridge between business theory

and business in practice. The game creates a realistic model of a startup and therefore offers

the player

fast,

risk-free,

practical experience

with a lasting effect.

TATA Interactive Systems is aware that a simulation cannot recreate reality in its entirety. Nor

is this the intention. For didactic reasons, simplifications are necessary to ensure that you are

not distracted from what is essential. A simulation which is too complex, would be counter-

productive towards effective learning.

1.4 TOPSIM Startup! Learning Goals

The focus of TOPSIM Startup! is on active learning. As with all TOPSIM products, our

theme applies:

TOPSIM Startup! learning goals are:

Learning to recognize and deal with problems and important success factors forstartups.

Finding your way through the information jungle you face as an entrepreneur, andextracting the necessary information for the current decision.

Creating a business plan, recognizing the crucial elements, and becoming sensitiveto the points and criteria important for a real investor.

Learning to clearly see the consequences of decisions you have made.

Formulating and implementing management goals.

Improving strategic thinking, linking strategies to goals, and using them whenmaking decisions.

Improving teamwork and organization.

This Startup! module deals with a startup in the production sector. It also includes thefollowing learning goals for this sector:

Interpreting market situations and market results correctly and implementing themin goal-oriented decisions.

Critically analyzing complex business management relationships.

Recognizing success factors and the relationship between print advertising andsales promotion, reputation, quality of products, prices, and demand generated.

Providing sufficient production capacity and avoiding the high costs associated withproducing over capacity.

Achieving growth and surviving seasonal fluctuation.

Holistic thinking: recognizing correlations between decision areas and co-ordinatingdecisions.

Using break-even analysis and production figures for business management.

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Startup!

Web

Business PlanParticipants'

System

Planning

Tool

Startup Preparation BusinessActivity

F

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r

m

a

t

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1.5 How the Seminar Works

The Startup! simulation consists of the two phases mentioned above creating a business

plan as well as startup, market entry and business activity.

In the first phase of the Startup! simulation you develop your business concept. A basicbusiness idea is provided to ensure that all participating firms are competing on the same

market. To work out a detailed business concept in the form of a business plan you have

access to a business plan assistant. This provides you with a structure for your answers, and

thus ensures that the information you give can be used.

All informat ion and production figures you provide when creat ing your business plan wil l

subsequently be evaluated by the instructor. As the simulation continues, the most important

production figures will serve as a rough indicator used to measure the business development

of your firm.

After the instructor has evaluated your business plan and made a decision regarding your

capital resources, you can set up your company. For this second phase of the simulation you

are provided with decision forms. You should fill in your decisions for the periods and hand

them in to the instructor, and/or you can feed your data into the computer and then give the

instructor a USB stick with the data saved onto it (or your instructor might also be able to

access the information via the internet).

After start ing up your company, you must make decisions for each subsequent period in

sales, purchasing and logistics, production, human resources, investments and financing. For

the purposes of the management simulation, one period represents one quarter.

Based on the data, the computer will simulate all business transactions and activities

resulting from the decisions made for the current period. However, periods can only be

simulated once all participants have completed the decision forms. Therefore, in order to

ensure that the competition is fair, it is important that you keep to the deadlines and hand in

your decision forms on-time, even if you need more time.

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After a period has been simulated, each company will receive n ine different reports, which will

serve as a basis for the next periods decisions. Also at the beginning of each period, you will

receive business news which will give you information on the economic situation. This

information will provide you with additional clues in assisting you with your decisions. For

example, it may prompt you to change price and personnel policies. As opposed to the real

business world, the management simulation gives you the advantage of recognizing theeffects of your decisions after a short period of time.

This overview shows Phase 2 of the simulation as described above.

1.6 Short Description of Your Business Idea

You and your partners are planning a small startup that will manufacture and sell bikes. At the

beginning, the bikes will only be sold in your bike shop, which houses both sales rooms and

production rooms. For the moment you are concentrating on producing tricycles, and later on

you intend to expand your range of products (mountain bikes). In addition to the individual,

made-to-measure bike frames, you are thinking of buying ready-made special frames later on

which will only require final assembly. In each product category, you determine an average

price at which you want to offer your products.

As well as the sales from your own bike shop, you could also tap into further sales potential if

need be. One possibility would be to cooperate with a wholesaler, who would sell your

products under another name, or you could set up an online shop to sell your bikes over the

Internet.

When working out your business idea, you should first of all think very carefully about the

strategy you intend to implement. Should you keep prices and costs (personnel, advertising,

etc.) low and sell as much as possible. Or does it make more sense to sell a smaller quantity

of higher quality bikes, which would involve high personnel and advertising costs but also

yield a higher profit margin per bike. It is of course also worth considering a combination of

the two strategies.

The Startup! Web also provides you with information about the environment for your new

company.

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2 Business Plan

2.1 Information Sources

To help you create your business plan, there are a number of information sources available to

you. Here you will find basic information about startups, markets, potential competitors,

possible sponsors, and so on:

Startup! Web: The Startup! website is intended to complement the Startup!

simulation and can be accessed with any web browser. If you have access to the

Internet, there will sometimes be a reference to information on the real World Wide

Web. However, this is not essential for you to be able to create your business plan,

nor to be able to participate in the simulation.

News is brought to you in the form of an industry newsletter including current

information for each period. However, this information must be interpreted and tested

for its relevance.

Information Broker: You have access to the following data: market research

reports, survey results, technical studies, and other relevant reports. They are of high

quality and up-to-date. However, these reports are not free of charge. You can find

further information on this subject on the Startup! Web.

2.2 Creating a Business Plan

The business plan assistant helps you to work out your business concept in detail by guiding

you through the 18 steps that form the essential components of a business plan and, if

necessary, gives you support and explanations.

When creating your business plan, you should complete the following steps:

1. Management Concept / Business Idea2. Product Idea / Service Concept3. Sales Prognosis4. Market Structure / Competitors5. Production and Logistics Planning (I)6. Production and Logistics Planning (II)7. Business Strategy and Marketing Mix8. Future Outlook9. Human Resources Planning10. Investments11. Other Expenses incurred in Starting and Expanding a Company12. Financial Planning

13. Debt Service Calculation14. Profit and Loss Account15. Budgeted Balance Sheet16. Company Value17. Entrepreneurial Team Personal Data18. Entrepreneurial Team Special Qualifications

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2.3 Using the Business Plan Assistant

You should always pay attention to the following:

Only fields in yellow can be edited. In the remaining fields, calculations will

automatically be made based on the figures you enter.

Sometimes you may have to enter blocks of continuous text. If so, the following

formatting options are available:

- New line: Alt + Return- Bold: Ctrl + Shift + F- Italics: Ctrl+ Shift + K- Underline: Ctrl + Shift + U

Navigation

Previous Page Menu Help Next Page

Important: When you activate a field and enter values, you must confirm your entry

(for large sections of text, you do this by clicking on a different part of the table with

your mouse, and for short entries (like numbers) by pressing the return key). If you do

not confirm your entry, it is NOT possible to use the navigation buttons!

In reality, creating a business plan takes several weeks. For the purposes of the Startup!

simulation you will be working on a simplified business plan which should give you a feel for

the crucial elements of such a document. This business plan assistant is not suitable for

creating a business plan for a real startup.

2.3.1

Step-by-Step Guide

2.3.1.1 Management Concept / Business Idea"If you cant recognize the customers benefit, the whole thing is hopeless."

Branco Weiss, Entrepreneur

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First of all, the main concept is described. For a promising business idea the following three

points are vital and should be looked at closely:

Clear customer value

Sufficient market volume

Feasibility and profitability

2.3.1.2 Product Idea / Service Concept

You should explain your main concept in detail. A detailed description of your product idea

and service concept, an analysis of your target group/groups, and a precise description of the

customer value are very important. All risks, such as the current competition and legal

situation, should also appear here.

It is also important to tread carefully, because the more realistically you portray the situation,

the more credible your business plan will be. Brainstorming could be helpful here for

identifying all the important points in each area.

2.3.1.3 Sales Prognosis

Market Volume

You must predict the expected market volume of the entire market in units (this must be done

separately for each of the two products). From your expected share of the market you can

derive the planned sales per unit for your company.

All figures you provide should be based on solid arguments. Therefore, it is very important

that you make realistic predictions and that you can give comprehensible reasons for them

(the reasons for your predictions are the subject of the next page of your business plan).

Sales Channels

It is also important, of course, to consider which sales channels your products will be sold

through. For instance, selling via the Internet would mean additional transport costs. Products

delivered to a wholesaler generally have to be sold at lower prices. Detailed sales figures

result from a percentage distribution of your sales over the three sales channels (Important:

the percentage you give will always be standardized to 100%. This means that if you enter

80% and 40%, your sales will be redistributed as 66% and 33%!).

Average Sales Price

When you have finished planning your sales figures and set an average sales price, your

sales will be calculated in PKS. These estimates will be used again in other parts of the

business plan as expected sales returns, so you should thoroughly research the likelihood of

your figures.

Expected Receipt of Payment in the Current Period

To be able to carry out your financial planning, you need to estimate what percentage of the

sales from one period are collectible. The remaining payments constitute accounts

receivables and are carried over into the next period.

2.3.1.4 Market Structure / Competitors

"A horse never runs so fast as when he has other horses to catch up to and outpace."

Ovid

Estimated Market Volume

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Your reasoning behind the market development you have predicted is a central component of

the business plan. If you cannot support your forecast with good arguments, all of your figures

will seem implausible.

Main Competitors

What is important for the success of a startup is the fact that the founders know their futurecompetitors inside out. For the purposes of this business plan, try to analyze your

competitors, both in the simulation and in the real world. Judge your main competitors by the

same criteria, e.g. sales volume / market share, pricing, growth, cost structure, product lines,

and customer target groups.

2.3.1.5 Production and Logistics Planning

Production

After you have determined how much you are going to produce, you can see how many

finished products are in stock when the sales you have predicted are realized.

As the next step, you must estimate the purchasing price for inputs (perhaps making use of

volume discounts). This will then give you the expected purchasing costs in EURO.

Logistics

All products sold over the Internet incur additional transport costs, which must also be

accounted for in this section, according to product category.

All finished products in stock incur storage costs. The amount of storage costs to be expected

should be indicated here as part of your logistics planning.

2.3.1.6 Business Strategy and Marketing Mix

"Even the slowest man, who does not lose sight of his goal, goes faster than he who

wanders with no goal."

Gotthold Ephraim Lessing

Business Strategy

To begin, formulate your entire strategic concept, i.e. the management strategy which gives

the whole company its general line of action.

Put the business strategy in concrete terms in relation to the marketing mix.

Product policy

Which products should you offer? Which product features are particularly important

for the goals at which you are aiming?

Pricing policy

Are you following a cost leadership or a differentiation strategy? If you want to retain

your customers by offering low prices, for instance, you should make sure that you

keep your manufacturing costs as low as possible.

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Distribution policy

Which sales channels are available to you? Which sales channels are important, and

which are not so important?

Promotion policy

Which advertising strategy do you want to follow? How do expenses for print

advertising, sales promotion and corporate identity, for example, stand in relation to

one another? What role does advertising actually play in the strategy you are

following?

For your financial and profit/loss accounts it is also important to know which investments you

will probably need to make in order to carry out your advertising strategy.

2.3.1.7 Future Outlook

"A mans wisdom can best be measured by the way he considers the future or the

end."

Georg Christoph Lichtenberg

To start with, think about industry development. Pay heed to your planned sales and other

decisions from 2.2.2.4. Market Structure / Competitors.

These are some of the important questions concerning industry development:

How will the relevant market develop?

How many competitors can be expected in the near future?

Are there high barriers to market entry?

Is it to be expected that competition will be tough or even that other competitors willbe driven out? Can several suppliers exist simultaneously?

Development of your own company compared to the industry:

Here it would be interesting to know which expansion opportunities there are, and which of

these opportunities you want to seize and when. Here you can also explain your figures. For

instance, why is the large investment, which would only bring returns much later, necessary in

the early periods, or to what extent is your business dependent on seasonal or economic

factors?

2.3.1.8 Personnel Planning

One very important factor with regards to your financial planning is the ongoing cost for

personnel. In general it will be difficult to adapt your personnel to your companys needs for

the short-term. Furthermore, hiring and dismissals also involve additional costs (e.g. contract

negotiations, orientation/training, etc.). Therefore, it is important that you accurately plan the

number of people you will need to employ!

Information, you may need to know:

Prospective salaries

Worker productivity (e.g. how many products a worker can produce per period)

etc.

All of this informat ion can be found on the Startup! Web.

The expected personnel costs in PKS will then be carried over into your financial planning

and planned profit and loss account.

Important: A sufficient amount of well-trained personnel is one of the crucial prerequisites for

a firm to be successful in the market. The founders themselves are of course usually

available as part of the workforce from the very beginning and take on key functions in the

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young company. (This also applies in the Startup! simulation. The individual members of your

entrepreneurial team take on different tasks depending on their qualifications (e.g. R&D,

sales, production) and therefore also constitute part of your personnel.

2.3.1.9 Investments

Here you plan how much you will probably need to invest in your production lines, officefurniture and equipment. Reliable figures and good capacity planning are also very important

here. You can find information on prices, etc. on the Startup! Web.

The depreciation for office furniture and equipment will be calculated automatically.

You will have to enter the depreciation for individual production lines manually, as their lives

depend on the types of production lines they are used in.

2.3.1.10 Further Expenses Incurred in Starting and Expanding your Company

Here you have the opportunity to include other expenses in your calculation, which may arise

while operating your business.

You will find these under Further Expenses in financial planning, and Other Expenses inthe profit and loss account.

2.3.1.11 Financial Planning

"If you want to know the value of money, try and borrow some."

Benjamin Franklin

Before you start your financial planning, you should complete steps 1 to 11, as the figures

predicted there are needed for financial planning purposes.

Your financial planning serves to calculate how much financing you need. When you have fed

all figures from Steps 1 to 11 into the software, the cash balance will show you how much

additional liquidity your company needs in each period, or how much money is left. Generally,

there will be a deficit here which indicates how much financing you need. To cover these

requirements you have the following two possibilities (which, of course, can be implemented

at the same time):

Venture Capital

In the startup period you can enter the amount of venture capital you expect to receive.

Excess financial means should of course be invested so that you can profit from the interest.

Venture capitalists want to be a part of your enterprise. The extent to which they are involved

is subject to negotiation (See 2.2.2.15 Company Value).

Loans / Subsidies

If you do not want to give up a share of your company, you will have to finance your

investments with standard loans and subsidies. In order to do this, you must find a bank

which is convinced by your business concept and awards you the necessary loans. In

general, this will be much more difficult than finding a venture capitalist (perhaps even

impossible!). Another disadvantage of this method is the additional burden of paying interest

on the loan!

Dont forget to take into account the forecasted interest rates when making financial decisions

(at the bottom of the page)!

2.3.1.12 Debt Service Calculation

To make sure that the bank loans you have planned for are actually granted, you need good

collateral. Here you should make it clear what collateral you have for a loan!

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2.3.1.13 Profit and Loss Account

All figures predicted so far will now be combined in the prof it and loss account in order to

calculate the income/loss from normal business activity. Apart from extraordinary

revenues/expenses and taxation, this corresponds to the periods net income.

2.3.1.14 Budgeted Balance SheetThe balance sheets of the nine periods shown here are also based entirely on values that you

have predicted so far in the business plan (e.g. in the profit and loss account).

ESE depreciation:

The costs incurred in the startup phase (e.g. wages and salaries, hiring costs) are under

"Expenditure for Startup and Expansion". They can thus be accounted for in the balance

sheet (See 14. Budgeted Balance Sheet, ESE) and will be depreciated linearly over 16

periods.

Assets

Assets are divided into:

FIXED ASSETS (assets which are intended to serve the business long-term)

CURRENT ASSETS (assets which are only temporary)

Equity and Liabilities

EQUITY

Equity includes all equity involved in the periods surplus or deficit, and in the accumulated

deficit. Equity is categorized as follows:

Share capital: corresponds to stock, i.e. the nominal value of the issued sharecapital.

Capital reserves: arise through an agio when new shares are issued

Retained earnings (revenue reserves): result from the excess after tax from the

previous periods by not distributing dividends.

Profit / Loss carried forward: Deficits from the previous periods do not immediately

reduce reserves, but can be set against surpluses that occur later.

Net profit / loss for period: The result of the current period will be taken entirely into

account by the closing balance. For the accounting department, use of the periods

surplus (see the profit and loss account) for distribution, building reserves, oroffsetting accumulated deficits can only take place in the new period.

LIABILITIES

Liabilities are all obligations towards financial institutions. These include: subsidies, loans

with a residual term of over 5 years, loans with a residual term of under 1 year, and overdraft

agreements.

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2.3.1.15 Company Value

Calculating Cash Flow

Cash flow = result of normal business activity + ESE depreciation + depreciation

Company Value

The companys value is calculated as the current value of the cash flow, by discounting the

cash flow interest with the interest rate expected. As opposed to alternative rates of return,

this interest rate should include an industry or company-related risk surcharge!

Accepting the premise of the company as a going concern, the cash flow expected for the

ninth period is the discounted value for the following periods.

You can work out the percentage of investment by investors and founders later in

negotiations with your venture capital sponsors. In your business plan you should give a

realistic percentage estimation which would suit you.

2.3.1.16 Entrepreneurial Team

"I invest in people, not ideas."

Eugene Kleiner, Venture Capitalist

Information on the entrepreneurial team is almost as important for potential investors as the

business concept itself. If the founders cannot sell or put into practice their idea, have no

business experience, or are no good at teamwork or personnel management, the whole

enterprise is generally doomed to fail before it even starts.

Therefore, in a business plan for a real startup, it is particularly important that the

entrepreneurs qualifications are listed in detail and that all aspects relevant to putting the

idea into practice are particularly highlighted.

For your Startup! Business Plan it may sometimes be difficult to give useful information here.

However, think about all the points made so far and try to show your qualifications for the

Startup! business idea in the best light possible.

This part of the Business Plan also serves to highlight important aspects to which potential

entrepreneurs may not yet have paid attention (e.g. what is my motivation for starting up a

company?, etc.).

2.4 Data Transfer

In your business plan, you formulated your companys goals and the resulting strategies and

measures to be taken. Therefore, after startup your business plan will be very important: it

serves to guide and control your business activity.

You could make comparisons of actual/target figures based on your calculations in the

business plan, for example. There is a transfer function at your disposal for you to import the

actual values from the simulation. Whenever you read your results using the participants

system, certain values will be prepared for import into the business plan. To import these

values, go to the Business Plan Assistant main menu and select Data Transfer. On the

following page, click Update Values.

Apart from importing values from the simulation, it is also possible to copy values you have

chosen as goals from the planning tool over to the business plan. You can insert these values

into the yellow table beneath the transfer table as follows:

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Open the planning tool (the business plan stays open in the background)

Select the transfer table

Click preparing values for export

Highlight the yellow boxes by clicking on the box at the top and dragging the

mouse downwards

Copy the values (with Ctrl + C or select Edit and Copy in the MS Excelmenu)

Go back to the business plan (go to Window in the menu and select BP

Assistant )

Select the column in the yellow table in which you wish to insert the values

Insert the values (with Ctrl + V or select Edit and Insert in the MS Excel

menu)

Important:

1. You can also enter values in the yellow table manually at any time.

2. If values are already in the yellow table ALWAYS overwrite these (manually or by copying

them from the planning tool), i.e. values imported from the simulation. Therefore, to be able to

import values for a certain period you must ensure that the relevant column in the yellow table

is empty before you click update values.

3. You can delete the imported values (in the blue table) manually at any time.

4. You can click update values as often as you like. Each time the values prepared by the

participants system will be read and then replaced, if necessary with values from the yellow

table.

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3 Creation of the Company

The moment the company is established is simulated separately from the market entry. In

your inbox you will receive the final approved form of your business plan and an up-to-date

bank statement giving you information about the liquidity you have available.

Now you will have to make basic decisions like:

Withdrawing money and applying for subsidized loans

Leasing business space

Buying machinery, office furniture and equipment, etc.

Hiring workers

Training workers

Expenses incurred will be capitalized as ESE (Expenditure for Startup and Expansion, see

the Profit and Loss Account in the business plan).

4 Market Entry and Activity on the Market

In TOPSIM Startup! the economic development of your company can be influenced by

numerous decisions. In this chapter you will be shown which decision factors are at your

disposal. When taking measures, you should always consider the decisions and reactions of

your competitors and the economic situation. The results of your decisions can be taken from

the reports following each period.

4.1 Sales

4.1.1 Price

First of all, a selling price can be set for every product in the bike shop (in PKS/item). The

effect of the price on the market depends on the price level set by your competitors. If you

offer your products at a relatively low price, your sales will be higher; but if your price is

higher than that of your competitors, you will sell less.

You will find an overview of your future sales market and the usual price levels of your

competitors on the Startup! Web.

4.1.2 Advertising

To increase your companys publicity, you have three different advertising instruments at your

disposal. Advertising affects both your bike shop sales and what you may sell later via the

Internet.

Here it is important to find the right mix in order to increase your profile and hence your share

of the market, which means that advertising costs should stand in reasonable relation to the

sales you are aiming at.

All advertising methods have different temporal effects and can also influence the markets

behaviour as a whole (i.e. heightened advertising activity by all competitors can lead to a

general increase in the market volume).

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Take a look at the following tips by marketing strategists:

To give your startup a higher profile it could make sense to spend slightly more on

advertising at the beginning. Established firms in your industry invest 5-10% of their

sales on average. The advertising budget is generally divided up as follows:

Print advertising 50%Sales promotion 20%CI 30%

Effect of marketing expenditure for advertising

Effect ... ... current period ... following periods

Print advertising Strong Lasting

Sales promotion Strong Little

CI Neutral Lasting

4.1.2.1 Print Advertising

Print advertising includes advertising in print media or on billboards. According to advertising

experts, this classic form of advertising is excellent for sales promotion in the current

period, but also has a lasting effect on sales in subsequent periods. In the initial phase,

this would be a good way for your company to gain a profile in your region and to motivate

customers to come and have a look at your bike shop.

4.1.2.2 Sales Promotion

Sales promotion is a very effective method of acquiring new customers. It includes all

expenditures like gift vouchers, coupons, raffles and so on. They have a strong effect in the

period in which they are used.

4.1.2.3 Corporate Identity Expenses

Creating a company image by using a public relations strategy also contributes to sales

promotion. These expenditures have a strong effect in the following periods. Examples of this

method are sponsorship, and having a presence in the media. Outlets such as newspaper or

magazine articles on the company, concerning new developments, events, and so on are

great way to increase awareness of your company. By setting a budget here you have

another opportunity to differentiate yourself from your competitors.

4.1.3 Wholesalers

Apart from sell ing bikes in your bike shop you may also be able to cooperate with large chain

stores. These wholesalers buy large numbers of products and sell them under a different

name (and generally at a lower price). This also gives you the opportunity to seize new sales

potential. However, in general it will be necessary to promise wholesalers prices lower than

those in the local sales market. The prices are each set by the wholesaler. You can then

decide how many bikes you want to deliver at this price.

4.1.4 Internet Presence

In the first period there will be no demand for bikes over the Internet. However, experts

expect that consumer behaviour will change significantly over the next few months. In a year

or so, it may already be possible to sell bikes over the Internet. This, of course, also gives

small local firms the opportunity to sell their products to a wider circle of customers. An

entirely new market could also be opened up by an e-commerce offering to include customersfrom all over the world.

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You can influence the quality of your e-commerce solution by how much you invest in your

Internet presence. Good quality (characterized, for example, by the speed of your website

and a high standard of security) leads to more trust and greater satisfaction on the part of

your Internet customers, and thus to more sales via the web.

4.1.5 Sales Representatives

The job of the sales representative is to advise the customers in your bike shop. The better

the support provided by competent sales personnel, the more likely the customer is to buy a

product.

Note:

On the decision form you should give the number of sales representatives

working at the end of the period (not including appointments and dismissals).

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4.2 Purchasing

The purchase price is a determining factor as to whether the contribution margin can be

generated with one article (compare the comments on break-even analysis in the appendix).

It is therefore important to carefully consider how much input material should be purchased

per period.

With a higher purchase order quantity, you can profit from economies of scale. However, you

should take into consideration that any surplus input materials which are not needed for

manufacturing will be put into storage. This causes your company to incur storage costs and

fixed capital costs.

4.3 Administration

No decisions can be made regarding administration. The system automatically takes into

account the necessary number of employees and other costs incurred in the administrative

area.

4.3.1 Purchasing and Administrative Personnel

The number of employees is based on the sales from the previous period. The following

guidelines must be considered:

Sales in th PKR 0 15.000 25.000 40.000 60.000 90.000 120.000160.000320.000 500.000

No. of employees

(admin.)1 1 2 3 4 5 6 7 10 12

One administrative employee will automatically be employed for the startup period.

4.3.2 Administration Costs

Also incurred are administrative fixed costs of 120.000 PKR per period and sales dependent

administrative costs of 1% of sales (e.g. for office supplies).

4.4 Research and Development

To be able to meet customer demand and keep up with technological progress, it is important

that you constantly improve your products. Here you can employ your own engineers to work

on product development, or you can use external firms to do so. The more people you have

working on each product and the higher your investment in research and development, the

higher the quality of your product, e.g. higher quality gear change, etc. (measured by the

technology index).

4.5 Goods and Services

4.5.1 Production Lines

With your decisions concerning technology, you determine how many production lines you

wish to run.

Yourproduction site capacity will be given in units per quarter. You can find more detailed

information on the Startup! website.

4.5.1.1 Production Lines Investment / Disinvestment

You can adapt your production site capacity by investment and disinvestment. For eachinvestment decision you have three different alternatives, which differ in price, current

costs, productivity, etc.

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The production lines are depreciated linearly per quarter (i.e.: depreciation = purchasing

price/useful life).

The disinvestment of production lines causes you to incur extraordinary costs amounting to

the residual book value and receive extraordinary revenues from the sale of scrap. If you

wish to disinvest a site, please provide the number of the site on the decision form. The site

will be scrapped in the same period.

4.5.1.2 Number of Production Workers

To manufacture the bikes you need skilled, reliable production workers. How to determine the

number of products one worker can produce per period depends on how technical the product

is. You can find further information on this topic on the Startup! Web.

You can train your workers to improve the level of productivity.

If you do not have enough worker capacity for the planned volume of products, temporary

workers from a temporary employment agency will automatically be employed. The cost of

employing these workers can be found on the Startup! Web.

4.5.2 Business Space

With regards to the site of your company, you have three different options. At all sites,

expanding your business later on is relatively unproblematic, as plenty of additional space is

available. The leased properties differ in terms of the lease amount, surface area, incidental

costs, etc. The site location is also important, as a suitable location can have a positive

influence on sales.

Some of your departments have certain basic needs regarding space. Furthermore, you must

also take into consideration the need for additional space depending on the number of

employees.

Every time you expand your business premises, all additional space will automatically beprovided with basic office furniture and equipment (OFE) (e.g. lamps, shelves, desks).

These costs depend on the amount of extra space leased. The OFE will be charged at a fixed

amount every quarter.

Note:

The amount of depreciation is a combination of an immediate depreciation of low

value fixed assets, five-year depreciation and ten-year depreciation.

If you overuse your space, this will affect the productivity of your production workers, who will

not be able to perform their tasks effectively because of lack of space. Need for space,

effective use of space, and possible declines in productivity will be reported in Participants

Report No.3 Use of space.

4.6 Personnel

Your decisions regarding personnel could have an important impact on the success of your

company. It is not just about determining your manpower requirements, nor your hirings and

dismissals. As has already been mentioned, you can train your production workers. You can

also decide how far you want to raise your non-salary staff costs above the legal minimum

rate. How many sales/administrative personnel you need depends on sales generated.

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Overview of decisions to make:

Number of sales and R&D personnel (at the close of the period)

Hirings / Dismissals in production

Training methods in production

Non-salary staff costs

4.6.1 Personnel Costs and Services

Information on salaries as a main component of personnel costs can be found on the Startup!

Web.

You must also decide on the level ofnon-salary staff costs in the form of predetermined and

fringe benefits. Here, a legal minimum percentage rate of wages and salaries applies (see

Startup! Web).

However, you can also allocate further benefits, such as pension subsidies, employee

discounts, bonuses, and so on. These added benefits can build stronger ties to your company

for particularly skilled workers, and can lead to a low attrition rate. However, you should

consider that once you have offered these benefits, you cannot simply revoke them.

Further personnel costs can be incurred later in the form of retirement provisions for your

employees. However, there will be no retirement provision made in the following few periods

because of your relatively young workforce.

4.6.2 Hirings and Dismissals

When making decisions regarding hirings and dismissals in the production department, you

must also take attrition into account.

WARNING:

In your Sales and R&D departments you determine your final number ofemployees. The system will automatically account for possible attrition.

However, you must take hiring costs into account.

Attrition will play no role at the start of your business activity. In this small company,

management learns right away when employees are thinking of leaving (you will find this out

from the scenario!).

Yet, in general your company will grow. If the number of employees per department exceeds

10 people, you must expect to not always immediately learn of when an employee would like

to leave the firm.

In the case ofnatural attrition, it is not only the job market situation which plays a role, butalso the conditions you offer your employees (e.g. the level of fringe benefits). The better the

working conditions in your company, the lower the rate of attrition. In this way, you save on

hiring costs for new personnel and avoid loss in productivity during the initial training phase.

However, there is one component of the attrition rate which you cannot influence: employees

leaving for personal reasons such as maternity leave, moving away from the area, finding

more attractive job offers, or giving up work altogether. Experience has shown that attrition

varies according to the department. Administrative employees are generally less likely to want

change than R&D employees.

You can increase your companys attractiveness by providing extra benefits, training

schemes, and reducing your employees workload. Too few employees could have adetrimental and lasting effect on your operations.

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Every time you hire or dismiss personnel, you incur fixed costs per employee. You will find

information about this on the Startup! Web.

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4.7 Finance and Accounting

Overview of decisions to be made:

Taking out short-term loans

Taking out long-term loans

Applying for subsidies

Deciding on recapitalization (venture capital)

Investing in stocks and shares

4.7.1 Financial Decisions

It is possible to take out short-term and long-term loans and buy stocks and bonds at any

time. To apply for subsidies and venture capital, your business concept has to be convincing.

The instructor will decide how money is allocated.

4.7.1.1 Short-Term LoansShort-term loans with a term of one quarter can be taken out in every period. The loan is

automatically paid back in the following period . This means that the loan must be re-

entered on the decision form every period. Interest payments are made in the current period

(the period in which the loan was taken out). The size of the short-term loan is unlimited.

An increasing debt-equity ratio (measured against private equity) means a clear increase in

interest rates due to higher risk. You will find the exact interest rates on the Startup! Web.

4.7.1.2 Long-Term Loans

Long-term loans have a fixed term of 10 years, during which time they cannot be paid off.

They have lower interest rates than the other loans. As mortgage credits, these loans are

subject to general interest rate fluctuations, i.e. interest rates can change over the periods.

Because long-term loans cannot be paid off earlier, they are particularly appropriate for

financing large investments which mean a permanent long-term gap in liquidity. However, it is

worth considering to what extent an investment should be financed by a long-term loan. If all

financing is long-term, the debited interest cannot be reduced at any time during the entire

simulation. Possible surplus cannot be used to pay off the loan, which would mean that the

operating income would always be reduced by the same interest expenditure.

4.7.1.3 Overdraft Credit / Minimum Cash Balance

At the end of each period you, must show a minimum cash balance (see Startup! Web). If

your inpayments plus the opening cash balance for one period are not enough to cover thiscash balance (once you have paid all amounts due) you will automatically receive an

overdraft credit for the necessary amount. This way you will avoid not only a negative cash

balance but also the inability to pay bills. You can find out the amount of your overdraft credit

from the financial report at the end of a period. The overdraft will automatically be paid off in

the following period, whereas the interest payments will be made in the current period.

You should try to arrange your financial planning so that you require as little overdraft

provision as possible, since this is relatively expensive.

4.7.2 Capital Investment / Securities

Surpluses from a period can be invested in short-term, fixed interest-bearing securities.

Repayment will automatically follow in the next period. Interest revenue will be credited to you

in the current period. All you have to do is enter the amount to be invested on the decision

form. In this way you can invest liquidity temporarily.

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4.7.3 Taxes

Tax is calculated as follows:

Result of normal business activity

+/- extraordinary income

= taxable income

* tax rate

= Tax to be paid

These figures appear in the profit and loss account. The tax rate applicable for your company

is on the Startup! Web. Any losses from previous periods will be set against your taxable

income. Therefore, you do not pay taxes until you have made a profit over all periods. Taxes

are then paid in the current period.

Documents

01 PartManual Startup Prod Part I PK Final